The world’s biggest social network has been making a push into the world of e-commerce, through the introduction of its Gifts feature. Through its acquisition and integration of Karma, the social gift-giving service that made headlines in recent news. Karma’s Facebook app had the ability to analyze your friends’ posts to determine the most appropriate person to give a gift to, recommend what you should give them, and provide a way to easily purchase said gift.
Sound exciting? Others seem to think so, even attributing the 6 percent rise in the company’s stock to the development.
But although this feature could develop into a profitable business on its own, there are other incentives to this move, and they’re not just profit-related. The bigger goal behind this move is to provide an incentive for users to stay on their Facebook as long as possible while obtaining as much useful data from them as they can.
As it stands, Facebook has more than 1 billion users, the largest of any social networking site. But the user counts don’t mean as much as the amount of time they actually spend on the site. So when you take that into consideration, their actions with Facebook Gifts become a little clearer. Imagine seeing a birthday notification for one of your friends on Facebook, and instead of having to leave the site to buy him a gift, why not purchase it straight from Facebook itself? You’ll never have to visit another website again!
More Than Just Profit
Facebook’s primary source of revenue comes from advertising. Their profits have always been from ads, and that’s unlikely to change, despite the desire of many of its investors to see a more diversified income stream. But the Gifts may bring more than just additional revenue – it also has the potential to boost the effectiveness of their advertising business. When you purchase a gift for a friend, Facebook gets analytical data on you and your friend and when you apply that to the millions of people that use this service to make purchases on regular basis, Facebook suddenly has loads of valuable data on the interests and wants of all its users.
Combine this data with sophisticated analysis and reporting software and suddenly Facebook has the ability to sell some of the most well-targeted ads in the business. People who have recently received cooking utensils as gifts will see ads related to cooking related products, and likewise people who have received horror movies as gifts will see more ads related to horror movies and movies in general..
Giving Credit Where Credit is Due
If you’ve ever played a Facebook game and made a purchase of whatever virtual credits that game requires, then chances are your credit card number is stored on Facebook’s server as well. This is obviously meant to make it easier to make such purchases, because honestly, who wants to enter that long credit card number over and over again? Security concerns aside, introducing another way to purchase things to Facebook through Facebook Gifts only paves the way towards making it easier to make impulse purchases, backed by the power of social media. Studies have shown that you’re more likely to buy something if you know your friends have bought it too. Think of the possibilities: if you see your friend talking about a great song on his Facebook feed, you should be able to purchase it in one click.
Its like the Amazon One-Click experience, but for Facebook. This, naturally, leads to speculation: will Facebook be taking on digital retailers like Google Play and Apples iTunes?
Gifts as a Business Venture
Facebook already has over 100 partners, and they’re all pretty well-known. Some of the bigger names include BabyGap, Brookstone, and Dean & Deluca. For each of its partners, Facebook is essentially acting as an affiliate, referring them to these retailers and collecting a percentage of either the purchase or a flat fee for the lead, depending on their agreement with the retailer.
Of course, its not all that simple, since Facebook has a whole host of technological advances on its side that make it more complex than your average affiliate program. So, as a business venture, Gifts is a great idea. Even the simplest estimate of its profitability gives us a value of around $450 million a year. This number can easily grow much larger when you consider that Gifts isn’t even available globally – its only open to US residents.
But by far the biggest value gained by this venture is in the way it keeps people on Facebook. By providing an easy way to engage in the most social of all activities – gift giving, they ensure that people will be on the service for a long time to come.